GPT Group and Westfield Group posted the second- and third-biggest declines.

Australian property trusts gained 14 per cent for equity investors this year, about double the climb for the Standard & Poor’s Global REITs index and outpacing the 5.1 per cent return for local sovereign notes.

Retail and warehouse rents and prices are set to rise this year, as office vacancies remain in check, Jones Lang LaSalle Inc forecasts, undersupply and low unemployment sustaining values.

Investors are seeking property trusts’ 5.3 per cent average bond yield and 5.7 per cent dividends after 10-year government yields slid below 3 per cent for the first time as Spain’s crisis worsened and Chinese output weakened.

“REITs are a good relative bet in a poor market," said John White, who helps oversee $3 billion as Melbourne-based managing director for Asia-Pacific public real-estate securities at investment firm Heitman International Securities Ltd. “There are not many places left in the credit world with a reasonable yield, and high quality property credit is one avenue which is still open."

The average price of credit-default swaps for five of the nation’s biggest property companies fell to 98 basis points above the index on June 4, the smallest premium since May 18. A basis point is 0.01 percentage point.

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Sydney-based CFS Retail’s average cost of debt fell to 6 per cent on March 31 from 6.5 per cent as of December 31, the company said at its quarterly update in May. The yield on $300 million of notes due in 2016 fell to a low of 5.37 per cent on May 8, according to Barclays Capital prices. The rate was 5.61 per cent yesterday, compared with 7.94 per cent in October, the highest level since the debt was sold last June.

The yield on GPT notes due in 2019 fell to 5.75 per cent on June 1, the least since they were issued, Commonwealth Bank of Australia prices show. GPT said last month it may add to existing bonds maturing in January 2019 as debt yields tumble and global rules make bank loans less competitive.

The extra yield investors demand to own bonds sold by Australian real-estate investment trusts instead of government bonds fell to 284 basis points yesterday, from 287 at the start of the year, Bank of America Merrill Lynch indices show.

The 16-member S&P/ASX 200 A-REIT Index has climbed 14 per cent this year, including reinvested dividends, driven partly by earnings that are faring better than other companies. That compares with a 2.7 per cent gain in the broader benchmark share index.

Fiscal year 2012 earnings forecasts for property trusts fell to growth of 1.8 per cent in April from 4.7 per cent in July 2011, Simon Garing, Sydney-based analyst at Bank of America Merrill Lynch, wrote in a report dated April 30. Companies in the S&P/ASX 200 index saw expectations plunge to a drop of 0.3 per cent in earnings from a previous prediction for an increase of 18.2 per cent, he said.

“This adjustment to market earnings expectations over the last 10 months has contributed to the recent A-REIT outperformance," he wrote. “This highlights the resilience of A-REIT sector earnings, of which about 90 per cent are derived from passive rental leases."

Australian property trusts offer an average 290 basis-point income return premium relative to 10-year government bonds, Morgan Stanley figures show. The average dividend yield for the 2012 fiscal year will be about 6.2 per cent, compared with about 4.2 per cent for their peers in Britain, about 3.7 per cent in North America and 3 per cent in Hong Kong, the bank forecasts.

The cost of insuring GPT’s debt has dropped 178 basis points since a high of 400 on October 4, CMA prices show. CFS Retail swaps have slid 60 basis points to 202 in the same period, and Westfield’s have declined from 387 to 232.

The Reserve Bank of Australia cut its overnight cash rate by a quarter percentage point last week to 3.5 per cent, the lowest since 2009. Swaps traders gauge there’s a 92 per cent chance the RBA will lower the benchmark rate to 3.25 per cent at its meeting next month, with an 88 per cent chance borrowing costs will fall to a record 2.75 per cent or lower by November.

That would be below the 3 per cent reached after the 2008 credit freeze triggered by the collapse of Lehman Brothers Holdings Inc and the record-low benchmark of 2.89 per cent set in January 1960.

“The income premium above 10-year bonds for Australia’s property assets is now well above the five-year average," analysts led by Lou Pirenc at Morgan Stanley wrote in a report dated May 21. “With a benign global growth outlook and renewed concerns for macro and political risks, we expect investors will continue to seek shelter in higher-yield defensive stocks such as the A-REITs."